TAX NEWS - June 2010

Connecticut Tax: New London could take tax hit on new EB site

New London, Connecticut -- Monday's announcement of the sale of the Pfizer Inc. campus to Electric Boat was met with enthusiasm, including a round of applause during the City Council meeting.

"It's better than having a building go dark," said City Manager Martin H. Berliner, echoing the fear many in the community felt when Pfizer announced in November that it was moving out of the 770,000-square-foot research and development center.

But a day after the sale agreement was announced, city officials were still excited knowing that up to 2,200 EB engineers, designers and support staff will work at the Pequot Avenue complex.

The elation is tempered, however, by the realization that ultimately the complex probably won't produce the kind of tax revenue that city leaders had hoped for when Pfizer opened its massive headquarters nine years ago.

"Potentially, down the road, there will probably be a reduction from what we're seeing now" in terms of taxes, Mayor Rob Pero said. "But to what extent, we don't know yet."

The selling price has not been announced, but some city officials are hearing that it is $52 million, which is a fraction of what it cost Pfizer to build the complex. EB will spend $99 million to develop the new engineering, research and development center, and that includes the purchase price of the land and buildings, according to office of Gov. M. Jodi Rell.

If the appraisal on the property is reduced from the current value of $316 million and EB takes advantage of state tax incentive programs, the company could end up paying as little as $200,000 annually in taxes, compared with the $2 million tax bill for Pfizer in 2008.

For now, though, EB's taxes will continue to be based on the 2008 assessment of $221 million, or 70 percent of the appraised value.

"I can't lower or raise assessments based on the market," said Assessor Barbara Perry.

The only way to receive an adjustment before the next revaluation in 2013 is to appeal in state Superior Court, Perry said. EB would have to prove that the property was worth less than it was appraised for in 2008, she said.

If the $316 million appraisal were reduced to around $52 million either through an appeal or during the next revaluation, taxes would be about $921,000 before any abatement. If EB ends up with tax abatement programs similar to the ones Pfizer had, it could pay as little as $200,000 in taxes.

As to appealing the assessment, "It's not an appropriate thing to be discussing if we haven't reached any kind of resolution," EB spokesman Robert Hamilton said. "It's too premature."

The state offers several different tax incentives, including those for companies investing in an enterprise zone in a distressed community or involved in research and development.

The city's enterprise zone extends roughly from the Pfizer complex off Pequot Avenue to the Gold Star Memorial Bridge and through the downtown area up to Huntington Street.

EB will apply to the state after it closes on the Pfizer property, which is expected within the next two months.

"It's really up to them and their tax attorneys to evaluate which one they think is appropriate for them," said Joan McDonald, commissioner of the state Department of Economic and Community Development.

Pfizer took advantage of the enterprise zone tax credit, which gave the company an 80 percent abatement on real and personal property taxes as well as a 25 percent corporate tax credit, both for 10 years.

Pfizer opened the state-of-the-art research and development complex in 2001. Last November it announced it was returning its workers to the Groton campus and putting the building up for sale.

EB is buying five separate parcels, which include the 24.41-acre main campus, a visitors center, a day care center, a vacant lot and a tiny island in the Thames River.

Because of state tax abatement programs and other incentives, in 2008 Pfizer paid about $2 million to the city in taxes, including nearly $500,000 in personal property taxes, on a net assessment of $52 million.

Without the abatements and tax credits, Pfizer would have paid about $5.6 million in taxes.

The state also gives the city roughly $2.2 million annually in a grant, representing 40 percent of the total taxes that would have been collected without the tax programs.

McDonald said she would not know how much money the state could offer New London until tax incentives are granted to EB.

The state also has committed to giving EB a $15 million grant, phased over three years, for construction, equipment and other project-related activities. McDonald said the grant sends a message to other companies that the state is interested in public-private partnerships.

"We read stories all the time about states and companies entering into these partnerships and we want to be proactively in that game," she said. "It's our future."

Even though it is not clear how much New London will receive in taxes, state officials said the deal is still great news because in this economic climate not many corporations are looking to buy real estate.

"It could have sat vacant for a very long time and New London would get no taxes," McDonald said. "So I think this is a win-win for the state, for New London, for Groton, for all parties."